Moody's reckons there's no property bubble in Australia

Australia’s housing market is about to collapse. After decades of credit-fuelled growth, relaxed lending standards, favourable tax treatment and outright speculation, the bubble, as they call it, is about to pop.

That’s a line heard more often than not of late, with some high profile analysts joining the long list before them of those who’ve called for the collapse of Australian house prices.

But not every analyst shares their view. Indeed, even with the rapid increase in house prices seen in recent years, particularly in Australia’s eastern capitals, some have even been brave enough to call for further substantial gains in the years ahead.

Alaistair Chan and Faraz Syed, economists at Moody’s Analytics, are two who don’t believe the bubble hype, suggesting that accommodative policy, robust rental growth and a recovering labour market will likely support valuations over the medium term.

Here’s their forecasts for house prices over the next two years, both for capital cities and regional areas.

In their view Melbourne, already the hottest market in the country, will continue to lead gains in 2016. Only Perth, Darwin and regional Western Australia, areas closely tied to the fortunes of the mining sector, are where they expect prices to fall, not rise, in the year ahead.

As for 2017, prices are expected to rise everywhere.

Looking further ahead, the charts below, supplied by Moody’s, will no doubt bolster the views of housing bulls and bears alike. Yes, there’s no bubble implosion in sight.

Here are the groups forecasts for Sydney and Melbourne property prices over the decade ahead.

And for the rest of the capitals, excluding Western Australia.

And here’s the forecast for prices in Western Australia. Yes, after no real capital growth in recent years, they too are expected to surge.

The bullish forecasts from Chan and Syed come despite their modelling suggesting that Australian house prices are already overvalued.

Based on analysis using interest rates, incomes, rents and the employment-to-population ratio, Moody’s suggests that Australian house prices are currently overvalued by 5.9%

It should be noted that estimates of overvaluation do not necessarily imply expectations of house value declines and vice versa,” say Chan and Syed.

“Estimates of fundamental house values will change over time as forecasts of income growth, interest rates and rental growth change and that could raise or lower the fundamental value of housing to meet actual valuations.”

Clearly, even with them deeming house prices overvalued at present, the forecasts offered by Moody’s are certainly at the polar opposite to Australia’s housing bears.

Given the recent acceleration in house prices and an economy already growing below its historic trend, it’s a safe bet that many out there hope the answer to the boom or bust scenarios lies somewhere in between.

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Interesting story and charts. Where is the chart for wages that match the housing increases? Yes, I believe the house projections are fiction. Rating agents made fools of themselves in the U.S. during the GFC.